The Real Estate Drug

Two incidents in the past month in rural farming areas in China have been attracting significant attention. One occurred in Wenzhou, Zhejiang Province, when a village leader who led local farmers in a protest over the compensation they received for being evicted from their land was found dead after a traffic accident.

The other, in Zhumadian, Henan Province, involved a female farmer who died after being pinned under the tyre of an excavator near her home.

The two incidents were both tied to the issue of land acquisition, and were both officially described by the authorities as accidents. But these claims were treated with scepticism by locals, with some even claiming the incidents were nothing short of premeditated murder.

Colleagues of mine have travelled to the two areas concerned to interview those involved. And the news they brought back was sobering. They told me that there was a pervasive distrust among villagers of local government, with some farmers even getting down on their knees to plead with the reporters to expose the truth. This desperation appears to have been prompted by the gradual loss of vital farmland over the last 10 years to make way for the needs of a red hot real estate market. The compensation for lost land has apparently been minimal.

In the Wenzhou case, tensions seem to have escalated over claims that the one-time government payout for acquiring farmers’ land is perhaps a tenth of the price per acre that the government has been selling it to developers for. As a result, there have been numerous protests by farmers over demolition work in recent years—relations between farmers and local government are tense, and have become a catalyst for social instability.

When I visited Hebei Province to report on land issues there, local farmers told me that they’d continue to protest, or even commit suicide, if the government payouts they are offered are too low.

Yet in reality, troubling as all this may sound, these recent events are only the most visible consequences of a deeper problem—China's economic development model has reached the stage where it will have to change.

One consequence of recent developments has, for example, been that governments are no longer relying so much on tax revenues, and are instead depending much more on land sales to generate revenue. Take Beijing, for example. Its revenues from selling land were 163.85 billion yuan ($24.8 billion) in 2010—a dramatic jump on a year earlier and accounting for about 70 percent of its revenues.

The central government is aware of the seriousness of the situation and has been calling for change to the model for economic growth. But interest groups with vested financial interests have hampered attempts at such change.

Members of the public have started to liken these land sales revenues to drugs—hard to quit once you get hooked on them.